Tom Berchtold: Barstow, California

Since 1994, Tom Berchtold has been active in real estate and investments. Berchtold's real estate experience includes business opportunities, foreclosures, refinancing, real estate investments, homes and land sales. Berchtold developed his marketing, sales and service skills during his earlier career of 25 years in the computer industry. Berchtold was a landlord, real estate investor and small business owner of several corporations. Today, Berchtold uses his experience to help people in real estate at Gold Point Realty. Berchtold specializes in Victorville residential and land for development of homes or commercial projects, and works with individuals, groups, developers and corporate entities with their acquisition and sale of all types of high desert land.

NuWire: What in your mind in particular about the Barstow market should be exciting for investors that are outside of the California area?

Berchtold: The high desert has five towns up here. Victorville, Adelanto, Hesperia and Apple Valley and then you have to go...30 minutes north to Barstow, so it's a 30-minute drive; it's on its own. And over the last four years, the Victorville area in real estate, prices have doubled and tripled. Barstow though, has appreciated but it hasn't done the three and four times...like Victorville has done, so from that point of view now Barstow looks exciting because it has potential to do that in the future here.

NuWire: What advantages in your opinion does it have in comparison to other areas of the U.S.?

Berchtold: I grew up in L.A. and I saw this whole southern California take off....One of the problems in these major areas like L.A. is that a lot of it has become overpriced for most people. Here in California, San Bernardino County has the most affordable houses and Barstow, being located in San Bernardino, has some major advantages. The first thing we know is progress is coming to Barstow. The real estate prices are still very low here. For example, land sells for as low as $25,000 a parcel. It's centrally located with freeway access to Vegas, Arizona, L.A., Orange County. It's still a rural area but has access to big cities. So within an hour's drive, you could play golf, fish, waterski, [have] access to major airports, San Bernardino University, theater, just about anything you want, so that really makes it pretty ideal over a lot of other places that I've seen in the country.

NuWire: Can you tell me about the job growth and commerce in Barstow?

Berchtold: Barstow has wanted to grow, but they do have...a catch-22 problem, meaning jobs versus housing. Barstow is an older town, and really has had little to offer either for jobs or housing, and to grow, the city needs jobs, then people come and buy homes, but without enough homes, people don't come looking for jobs. So housing has been a major concern, at least for the city to try and get larger companies to come into Barstow.

Barstow has been working on getting a couple of Indian tribes to open gambling casinos here, and these projects have been...we've been working on them for years...and that hasn't happened yet. But we're starting to see some growth. Home Depot just took the first step and opened a new store here. Wal-Mart wants to build a super Wal-Mart and a food distribution center, and I understand that some other companies are interested in opening distribution centers here, so that would bring jobs. The interesting thing is we now have three new housing projects under construction, so what it's really starting to look like now is jobs are coming, housing is coming, so Barstow's next problem will probably be growing pains.

NuWire: How has the market changed over the last few years in Barstow, and how do you see it changing over the next five years and into the future?

Berchtold: For years, Barstow was a railroad, fast food, gas station town for travelers really heading to Las Vegas and Arizona, and they have a nice little town and the downtown has been cleaned up and they're really trying to bring it back to looking like Main Street USA, so that gives the town quite a character.

There's...several new major stores coming, distribution companies want to build here, the two Indian casinos, the three housing projects...and we have quite a few, several independent builders that have been putting custom homes in the area.

Barstow is really starting to develop into more than a little town and a rest stop for travelers. I think in the future here it's going to be very good for jobs and a place to live.

NuWire: Which physical areas of the city are currently experiencing the greatest amount of growth?

Berchtold: There's an area called Barstow Heights, which is located on the south part of town, and that's where these home projects are going in. And then there's two other areas that are probably going to grow. The southern area, which is called an outlet center, it's been there for years on [Interstate] 15 to Vegas, and this location's been mostly kind of a gas and food stop for freeway traffic, but a lot of investors have been buying land in that area because the talk has been that's where the Indian casinos are going to get located. So that has created quite an interest in that area. And [if] the Indian casinos come, then I expect that area to grow. The other part is on the western part of town off Route 66, there's an industrial zoned area, and that's where these large companies are looking at putting their distribution centers, so those would be the primary growth areas of the city itself.

NuWire: Which areas represent the best opportunity for investors who are interested exclusively in maximizing their cash flow?

Berchtold: Barstow is a small town of a population of about 23,000, and most of the properties there were built between the 1930s and 1980s, and they're being sold as is. So that kind of creates a challenge for investors because usually investors want newer properties. So one of the key areas to look at would be renting, and renters are typically military or subcontractors for Fort Irwin and then also the Marine logistic space, which is located in Yermo.

Duplexes, they start at about $175,000 and rent from $500 to $600 a unit, and this can go all the way up to 10 units at $595,000 with an average of $600 a unit for rent. Rental homes, which would include mobile homes, range from $104,000 to $250,000. They typically rent between $500 and $900.

Commercial buildings are typically old, very specific use, sold as is, and in my opinion, I think they're overpriced, and they were typically built between 1930 and 1986, running somewhere for sale $27 to $204 a square foot. I think it would probably be more cost effective just to build new.

Wherever these large box stores like Home Depot go, they're going to put in their strip centers, so I really don't see commercial an area to target. If I were coming in as an investor I'd probably look more at duplexes or apartments would provide the best cash flow.

NuWire: Which areas would represent the best places for investors interested in capitalizing on long-term appreciation?

Berchtold: For long-term appreciation I would choose land as an investment, and the reasoning is buildings in Barstow are older, typically sold as is and they're probably going to be required to bring them up to code for parking, zoning, those things. Land is going to appreciate because it's a growing area...it only has one expense, a 1 percent property tax every year. Closing cost is [low] on land...anybody can buy it, and we still have a lot of land available around Barstow for under $50,000.

Areas that I would suggest looking at...for higher-priced properties, would be around the city of Barstow, like the distribution center or where the main stores are coming. For the people who are looking for $50,000 or less, I'd probably suggest Hinkley. It has the Harper Lake energy park, which consists of a solar plant that's already been functioning for years...has two plants at 80 megawatts, and they're also proposing to put in a methane plant run by dairy condos for some 90,000 cows. Basically, the methane there would run the building the cows are in and they'd sell the rest of the power to the utility companies.

Another place that may be getting up to around $100,000 would be around Yermo. There's a lot of talk of putting an industrial park...and also the Marine logistics base is over there, so it would make sense. And then again getting back to properties that run down toward the $50,000 on the east side of Barstow would be Newberry Springs. And it's a good area because it's located between I-15 and I-40 so it's between two major highways, there is a proposed retirement project for the area. It's also known as one of the waterskiing capitals of the area.

NuWire: Do you see a lot of investors participating in rehabs and flips?

Berchtold: Right now, it's not the time to flip properties because there's not enough jobs, there's not enough demand for homes. Homes just aren't going to appreciate fast until we get more jobs in the area. So right now I would suggest to just rent and rehab later when the growth starts to take place. The only reason I would suggest to buy now is because you can get homes for under $200,000.

NuWire: Of the investment strategies we talked about...which ones do you think are most successful in the market in Barstow, and why?

Berchtold: Today, land would be the best investment because you know what your cost is up front, the land is going to appreciate, we know progress is heading to Barstow. For those who need to leverage, you can put 30 to 50 percent down with 7 percent interest.

Annual taxes are only 1 percent. It's usually simple and easy to buy and sell land. You can also defer taxes with a 1031 exchange, and land is going to require the least amount of work and probably get about the best amount of return on investment.

NuWire: Are there any common mistakes you've seen investors make in the market in Barstow?

Berchtold: The biggest thing we've seen is investors come in buying homes thinking they can just flip them in one year and make a profit on the appreciation and as we've just seen when the market stops, these investors aren't prepared to hold the properties so the negative cash flow throws them into foreclosures. So basically since we don't control the economy, we as investors have to be in a position to sell or hold our investments. That's the most common mistake I've seen made so far.

NuWire: What...do you see as areas of future opportunity in Barstow?

Berchtold: Right now, the future is going to bring several different opportunities at different stages. And we've seen this in areas in the past. Right now, to me, land is the best investment, because land usually appreciates in all the different stages of real estate. When homes are in demand, rents go up and then rentals become more profitable. But then when new homes are in demand, investors buy those and they flip them. And then as the homes go up, rehabs become more profitable. So, at different stages, different investments here will become attractive. And the only thing I can always say in any one of these markets is to remember that money is made in the buy and not in the sale. And what this means is if you buy it at the right price, you can always make money.